The country’s real-estate slump is getting worse—and looks set to drag on for years
3 min
China’s real-estate crisis has dragged down the economy, caused massive layoffs and pushed multibillion-dollar companies to the point of collapse.
Economists think it is about to get worse.
Sales of newly built homes in China fell 6% last year, returning to a level not seen since 2016, according to China’s statistics bureau. Secondhand home prices in its four wealthiest cities—Beijing, Shanghai, Guangzhou and Shenzhen—declined by between 11% and 14% in December from the year before, according to the broker Centaline Property.
Developers are starting fewer projects. Homeowners are paying back their mortgages early and borrowing less. Once-thriving property companies are stuck in protracted negotiations with foreign investors, following defaults on about $125 billion of overseas bonds between 2020 and late 2023, according to figures from S&P Global Ratings.
Chinese developers and local governments are so desperate to attract home buyers that some have resorted to bizarre marketing strategies.
A property company in Tianjin ran a video advertisement featuring the slogan “buy a house, get a wife for free.” It was a play on words, using the same Chinese characters as the phrase “buy a house, and give it to your wife”—but presented in a sentence structure typically used to offer freebies for home buyers. In September, the company was fined $4,184 for the ad.
A residential compound in eastern China’s Zhejiang province promised last year to give home buyers a 10-gram gold bar.
Earlier this month, Sheng Songcheng, former head of the statistics department at the People’s Bank of China, told a local conference that the housing downturn would last another two years. He thinks new-home sales will fall more than 5% in both 2024 and 2025.
Wall Street economists are also ringing alarm bells about how long the real-estate slump will last.
“Not too many people are buying, can buy or want to buy,” said Raymond Yeung, chief China economist at ANZ. He said there had been a fundamental shift in the way Chinese people view the property sector, with housing no longer seen as a safe investment.
China’s real-estate sector and related industries once accounted for around a quarter of gross domestic product and the sector’s slump has been a significant drag on the world’s second-largest economy. That has increased calls for Beijing to do more to prop up the sector, but so far Chinese officials have stuck to piecemeal policies rather than introducing a landmark stimulus package.
A number of economists are making comparisons to Japan, which spent decades trying to rebound from a crash in real-estate and stock prices. China’s stock market is in a years-long slump.
China’s central bank can help make the situation less painful, but it will need to be aggressive, said Li-gang Liu, head of Asia Pacific economic analysis at Citi Global Wealth Investments. The central bank still has policy room and could take one big step to make a significant impact, he said.
Liu Yuan, head of property research at Centaline, said that without the government’s help, new-home prices will need to drop by another 50% from current levels before they reach a bottom. This is based on the assumption that the tipping point will only come when it is cheaper to buy than to rent houses, Liu said.
China’s real-estate downturn has claimed dozens of victims. More than 50 developers—mostly privately owned—have defaulted on their debt. Developers still have millions of unfinished homes that were sold but not delivered. Chinese authorities have set aside billions of dollars to help builders complete apartments but the logjam is growing.
The crisis has drained the coffers of some Chinese local governments, which previously relied on land sales as a main source of income. Economists estimate they have hidden debt worth anything from $400 billion to more than $800 billion. To quiet talk of potential defaults, the central government has set up debt-swap programs to help some of them refinance.
Some economists are optimistic. In the first half of this year, buyers of secondhand homes will gradually return to the new-home market and prop up the sector, said Helen Qiao, chief China economist at Bank of America. “Things will slowly get better from here,” Qiao said.
But most are still expecting more pain, and investors are bearish. A benchmark of Hong Kong-listed property stocks had fallen for four years in a row before the start of this year. Since Jan. 1, it is down another 15%.
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New amenities, from a gym to a movie theatre, and a good commuter location filled this suburban office tower
3 min
Manhattan’s office-vacancy rate climbed to more than 15% this year, a record high. About 80 miles away in Philadelphia, occupancy also is at historically low levels. But a 24-storey office tower located between the two cities has more than doubled its occupancy over the past five years.
Developer American Equity Partners bought the New Jersey office tower, known as 1 Tower Center, for $38 million in 2019. At the time, the 40-year-old building felt dated. It had no gym, tenant lounge or car-charging stations. The low price enabled the firm to spend more than $20 million overhauling and luring tenants to the 435,000-square-foot property.
Now, the suburban building is nearly fully leased at competitive rents, mopping up tenants from other buildings after the owner added a new lobby, movie theatre, golf simulator, fitness centre and a tenant lounge featuring arcade games and ping-pong tables.
“Our tenants told us what they needed in order to fill up their offices,” said David Elkouby , a co-founder of American Equity, which owns about 4 million square feet of New Jersey office space.
The new owner also liked the location at the 14-acre hotel and conference-centre complex, off the New Jersey Turnpike’s Exit 9 in East Brunswick. The site is a relatively short commute for millions of workers in central New Jersey and is passed by 160,000 vehicles daily.
The property’s turnaround shows how office buildings can thrive even during dismal times for most of the U.S. office market, where vacancies remain much higher than pre pandemic.
Success often requires an ideal location—one that shortens the commute time of employees used to working at home—and the sort of upgrades and amenities companies say are necessary to lure employees back to the workspace.
One Vanderbilt, a deluxe office tower with a Michelin-star chef’s restaurant and plenty of outdoor space in Midtown Manhattan, is fully leased while charging some of the highest rents in the country.
The 11-story Entrada office building, in Culver City, Calif., is making the same formula work on the other coast. It opened two years ago with a sky deck, concierge services and recessed balconies. A restaurant is in the works. The owner said this month that it has signed three of the largest leases in the Los Angeles area this year.
1 Tower Center shows how the strategy can be effective even in less glamorous suburban locations. The tower is prospering while neighbouring buildings that are harder to reach with outdated facilities and poor food options struggle to fill desks even at reduced rents.
The recent interest-rate cut and reports that some big companies such as Amazon .com are re-instituting a five-day office workweek have raised hopes that the office market might be getting closer to turning.
But with more than 900 million square feet of vacant space nationwide and remote work still weighing on office demand, more creditors are seizing properties that are in default on debt payments.
Rates are still much higher than they were when tens of billions of dollars of office loans were made, and much of that debt is now maturing. The recent interest-rate cut doesn’t mean “office-sector woes are now over,” said Ermengarde Jabir, director of economic research for Moody’s commercial real-estate division.
Lenders are dumping distressed properties at steep discounts to what the buildings were worth before the pandemic. Some buyers are trying to compete simply by cutting their rents.
“Most owners don’t have the wherewithal to do what is required,” said Jamie Drummond, the Newmark senior managing director who is 1 Tower Center’s leasing agent. “Owners positioned to highly amenitise their buildings are the ones who are successful.”
HCLTech, a global technology company, illustrates the appeal. It greatly expanded its presence in New Jersey by moving this year to a 40,000-square-foot space designed for its East Coast headquarters at 1 Tower Center.
The India-based company said it was drawn to the building’s amenities and design. That made possible a variety of workspaces for employees, from quiet nooks to an artificial-intelligence lab. “You can’t just open an office and expect [employees] to be there,” said Meenakshi Benjwal , HCLTech’s head of Americas marketing.
HCLTech also liked the location near the homes of its employees and clients in the pharmaceutical, financial-services and other businesses.
Finally, it didn’t hurt that the building is a short drive from nearby MetLife Stadium. The company has a 75-person suite on the 50 yard line where it entertains clients at concerts and National Football League games.
“All of our clients love to fly from distant locations to experience the suite and stadium,” Benjwal said.
